[New York Stock Market] Nasdaq Falls 1.73% on 'Hawkish' Powell... Treasury Yields Surge

[Image source=Reuters Yonhap News]

[Asia Economy New York=Special Correspondent Joselgina] Major indices on the U.S. New York stock market closed lower on the 3rd (local time) as they digested the previous day's Federal Open Market Committee (FOMC) decision that suggested the possibility of raising the benchmark interest rate to even higher levels. Concerns over tightening resurfaced, pushing the yield on the U.S. 2-year Treasury note, which is sensitive to monetary policy, to its highest level since 2007 during intraday trading.

On this day at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average fell 146.51 points (0.46%) from the previous close to finish at 32,001.25. The large-cap S&P 500 index dropped 39.80 points (1.06%) to 3,780.80, and the tech-heavy Nasdaq index closed down 181.86 points (1.73%) at 13,042.94.

Energy stocks led the market. Energy company ConocoPhillips rose 5.78% from the previous close, buoyed by strong earnings. ExxonMobil gained 1.36%, and Chevron increased by 1.47%. Electric vehicle stocks such as Nio (+4.74%), Rivian (+2.28%), and Tesla (+0.15%) generally showed upward trends. However, electric truck maker Nikola fell more than 10% after lowering its future guidance despite beating earnings expectations.

Big tech stocks were weak. Microsoft dropped 2.66%. Apple slid 4.24% following news of a lockdown at Foxconn’s factory in Zhengzhou, China. Amazon, which announced a hiring freeze due to worsening earnings, fell 3.06%. Additionally, Moderna declined 0.75% due to earnings that fell short of expectations, and Qualcomm dropped 7.66% as its earnings guidance disappointed amid weak demand in China and inventory issues. Under Armour rose nearly 12% on earnings that met expectations.

Investors closely monitored the FOMC decision from the previous day, as well as the actions of central banks worldwide, movements in Treasury yields, and corporate earnings.

Earlier, Federal Reserve Chair Jerome Powell, at a press conference following the FOMC meeting that decided on a fourth consecutive giant step (a 0.75 percentage point increase in the benchmark interest rate), hinted at a possible slowdown in the pace of future rate hikes but maintained a hawkish stance by stating that "the terminal rate could be higher than previously expected." The market interpreted this as the Fed effectively signaling an era of a 5% benchmark interest rate and confirmed the upward revision of the terminal rate.

In addition, the Bank of England (BOE) also raised its interest rate by 0.75 percentage points on the same day, aligning with the Fed’s aggressive tightening. The UK’s interest rate rose to its highest level since the global financial crisis in 2008.

As central banks around the world continued tightening, Treasury yields surged. The yield on the U.S. 2-year Treasury note, sensitive to monetary policy, surpassed 4.7%, marking the highest level since 2007. It briefly rose to 4.745% during intraday trading. The 10-year yield also exceeded 4.2% at one point before narrowing its gains.

The rise in Treasury yields indicates that demand for safe-haven assets like Treasuries has decreased due to recession concerns, causing Treasury prices to fall. This, in turn, exerted pressure on the stock market.

Similarly, the U.S. dollar, another representative safe-haven asset, strengthened. The Dollar Index, which measures the dollar’s value against six major currencies, rose nearly 1.5%, approaching 113.

Investor attention is focused on the U.S. October employment report to be released on the 4th. The market expects nonfarm payrolls to increase by 200,000 and the unemployment rate to rise slightly to 3.6%. The weekly initial jobless claims released on this day decreased by 1,000 from the previous week, reaffirming the labor market’s resilience.

However, concerns about an employment downturn are growing as Amazon announced a hiring freeze citing economic uncertainty, and companies like Lyft and Stripe revealed plans for layoffs. Adam Sarhan, CEO of 50 Park Investments, stated, "To bring inflation down, the unemployment rate needs to rise."

Corporate earnings announcements continue. After Peloton, Moderna, and Kellogg, Starbucks is scheduled to release its earnings after the market close.

Oil prices fell due to the strong dollar and tightening concerns. At the New York Mercantile Exchange, the December West Texas Intermediate (WTI) crude oil price closed at $88.17 per barrel, down $1.83 (2.03%) from the previous close.

This content was produced with the assistance of AI translation services.